Data from the Japan Exchange Group shows that overseas investors net sold about ¥395 billion (US$2.5 billion) worth of Japanese stocks in the week through May 29, abruptly halting an eight-week streak of net purchases. The sell-off came just as the technology-heavy Nikkei 225 index breached the 65,000-point level for the first time, fueled by AI-related stocks like SoftBank, Kioxia, and Murata Manufacturing.
AI Frenzy Breached the 65,000 Mark
The rapid ascent of the Nikkei has stirred concerns of overheating among some market participants, prompting a wave of profit-taking. AI-themed names contributed a significant share of the recent gains, but the pace of valuation expansion is now triggering caution. “There is a growing consensus that AI is forming a bubble, and we estimate that roughly 70% of the advance in Japanese equities in 2026 has been driven by AI-linked stocks,” said Pelham Smithers, managing director at UK-based equity research firm Pelham Smithers Associates.
Profit-Taking Shifts Funds Toward Europe
As cautious sentiment builds, some global investors are rebalancing their portfolios. Smithers noted that some of them “want to exit Japan and allocate to markets with less AI exposure, such as Europe.” This shift underscores the swift rotation of large capital flows across global sectors, with Japan—the primary beneficiary of the recent AI hype—now facing outflow pressure. While the weekly net selling figure does not yet signal a panic, it does reflect that institutional investors are translating AI bubble worries into concrete asset allocation moves.